This is the first in a series of articles that explores why closely held businesses should seriously consider establishing an independent Board of Advisors. Future articles will examine related themes, including how to structure an advisory board; how to select and compensate board members; and how to run board meetings.
In today’s economy, it is increasingly possible for entrepreneurs to successfully scale an enterprise by leveraging technology and other assets to capitalize on large market opportunities. However, entrepreneurs with growing businesses should be ‘careful what they wish for’ because the prospect of rapid growth often presents a multitude of challenges and risks than can overwhelm an early-stage enterprise.
A Board of Advisors vs. A Board of Directors
One way to help address these challenges and mitigate related risks is to utilize a Board of Advisors. Unlike a Board of Directors, an advisory board is a group of independent experts that offer guidance and expertise without formal decision-making or legal authority, and without the associated liability.
For the entrepreneur, and for early-stage companies, a carefully chosen board of advisors can provide substantial value in several areas:
Leverage Outside Experience
It is not unusual for an entrepreneur to create a successful startup and then struggle while attempting to scale the business. Sometimes, the founder and management team fail to adequately recognize blind spots within the organization that can lead to operational weakness or underperformance. An advisory board allows management to harness a broad array of outside experience and subject matter expertise that may be
lacking within the organization. This allows the company to supplement its knowledge base, increase overall visibility and create stronger leaders.
Provide Broader Perspectives
Business owners sometimes lose sight of the broader issues that can impact their company’s success. This is especially true with technology-driven startups where the founders and their team are focused on perfecting a ‘better mousetrap’ while failing to develop effective strategies to manage growth, capitalize on market opportunities, protect intellectual property, address competition, and build financial and organizational strength. A board of advisors provides a deep set of perspectives that complement those of the management team and help equip the company to drive business goals.
Enhance Credibility
Entrepreneurs who are well-regarded within their field of expertise often lack credibility in the broader business and financial communities. As the early-stage enterprise gains business traction, it’s critical for the management team to demonstrate a high degree of competence across a stakeholder base that includes customers (new and targeted), relevant supply chains, technology partners, and of course, potential investors. A well-chosen advisory board can help equip the early-stage company with a measure of ‘standing’ with these stakeholders that otherwise would be lacking.
Capitalize on Business Opportunities
It can be frustrating when a business with promising technology, product or service offerings fails to deliver in key areas. Whether it’s securing a critical technology partner, penetrating underserved markets, finding strategic financial investors, building a strong talent pool, or identifying risks that can significantly impact the business, early-stage companies often need help. This is where a board of advisors can be particularly valuable. A pool of experts with deep experience and solid business connections — coupled with a genuine commitment to supporting the enterprise — can act as a lifeline to the entrepreneur and help the company navigate to successful growth.
At Wilchins Cosentino & Novins LLP, we guide and counsel owners of privately held companies from formation to exit. Learn more about our firm’s practice areas offering exceptional service and legal counsel for closely held businesses. Please contact Stephen N. Wilchins directly via email or phone at 781-247-8010 to discuss strategies to achieve your goals.
This article is not legal advice and should not be taken as such or relied upon as legal advice.